UPS Capital, Big Brown's financial services arm, has launched a program to extend credit to small U.S.-based importers. To qualify for the program, importers must have $50 million or less in annual revenues and bring in between one and 10 ocean containers per month.
Under the "Cargo Finance" program, UPS Capital, rather than a traditional financial institution, provides the financing for a trade transaction. UPS Capital pays the supplier for the full value of the goods once UPS takes possession of the bill of lading. The importer, which has already paid half the cost to UPS Capital up front, delivers the remaining funds normally within 60 days. The service is designed for smaller companies that might otherwise have to obtain costly letters of credit or pay cash to their suppliers in advance of shipment.
The secret sauce, at least in UPS Capital's view, is that the loans are collateralized by the shipments themselves, which UPS handles and monitors with real-time tracking visibility. Many traditional lenders are unwilling to finance against goods in transit because they lack the capability to monitor the goods' whereabouts, UPS says.
UPS Capital spokesman Steve Chmura says the pilot for Cargo Finance involved eight U.S. importers, all of whom work with Asian suppliers. The company is looking to extend the program to Europe and would be willing to work with traditional lenders should the service gain traction.
Chmura notes that the pilot customers already had access to credit lines elsewhere and weren't being affected by the U.S. credit crunch. "We are essentially giving them another financing option," he says.